Types of Banks

1. Types of Banks IGCSE Economics, Unit 3.1 Section6

2. What is a bank? A bank is a financial institution that acts as a financial intermediary between consumers who wish to deposit money and consumers who wish to borrow money.

4. Check Point Complete activity 3.6. This activity will be handed in, so make sure you do not write it in your notes.

5. How do banks make a profit? • Charging interest on loans • Charging fees for the provision of financial services • Withdrawals from ATMs • Exchanging and transferring foreign currencies • Issuing credit and debit cards • Telephone and internet banking services • Making Investments

6. Types of Bank • Commercial Bank • A type of bank with individual and business customers that has retail branches in many towns and cities. • Services include: • Accepting deposits of money and savings • Helping customers make and receive payments • Making personal and commercial loans • Exchanging foreign currencies

7. Types of Bank 2. Credit Unions • A cooperative, not-for-profit organization, owned by and for its members • Services include: • Low-cost loans to members • Services similar to commercial banking services, but at low to no fees

8. Types of Bank 3. Mutual Societies • Owned and run on behalf of members or customers. • Services include • Traditionally specialized in providing mortgages • Now offer many commercial banking services

9. Types of Bank 4. Investment Bank • Specialize in helping large business organizations raise finance to fund their operations and expansion. • Services include: • Helping firms raise funds by selling shares on the stock market • Advising on company mergers and takeovers

10. Types of Bank Islamic Banks • Based on the principles of Islamic Sharia law, which forbids interest charges and payments. • How do Islamic banks make profit? • Islamic banks can earn a profit from the fees it charges customers for banking services, including making loans • People who deposit their money will earn a share of the bank’s profits rather than paid interest

11. Check Point Choose one of the banks we discussed today and write a haiku (5-7-5) about it. Here’s mine: Investment Banks Investment Banking You raise so much capital By selling the stocks

12. The Role of the Central Bank The central bank is the center of the banking system in most economies. The main function of the central bank is to maintain the stability of the national currency and the money supply. In other words, the central bank is in charge of controlling all the money in an economy.

13. The role of the central bank In many countries, the central bank is owned by the government and run by a public corporation. The oldest central bank is the Bank of Sweden, est. 1668 The second oldest is the Bank of England, est. 1694

14. Functions of the Central Bank • Issues notes and coins for the nation’s currency • It manages payments to and from the government • It manages the national debt • It supervises the banking system, regulating the conduct of banks, holding their deposits and transferring funds between them • It is the ‘lender of last resort’ to the banking system • It manages the nation’s gold and foreign currency reserves • It operates the government’s monetary policy

15. Check Point Complete the Venn diagram for commercial banks and the central bank. Make sure you consider the following questions: • What are the main functions of the two banks? • What services do they provide and to whom? • How are they organized, controlled, and financed? • What are their relationships with other banks in your country and globally? • What role do they play in your economy?